We recently told you about a virtual desktop service for iPads and other devices that seems to exist only because it breaks Microsoft's Windows licensing rules in order to provide an unbeatable price: free, with the option to upgrade to a more robust service for just $5 a month.

The hosted virtual desktop service, from gaming company OnLive, has virtualization vendors who play by Microsoft's rules seething. Instead of suing OnLive, as one might expect, Microsoft responded to criticism of OnLive's favorable arrangement with a blog post stating "We are actively engaged with OnLive with the hope of bringing them into a properly licensed scenario."

The people who are angry include Guise Bule, CEO of tuCloud. He accuses Microsoft of playing favorites with OnLive—whose CEO is a former Microsoft executive—while regularly auditing license compliance for companies like tuCloud that provide legitimate virtual desktop services. Bule is so mad that he says he is forming an entirely new company called DesktopsOnDemand to provide a service identical to OnLive's, complete with licensing violations, and dare Microsoft to take him to court. Bule hopes to force Microsoft into lifting restrictions on virtual desktop licensing that he says inhibit growth in the virtual desktop industry, and seem to apply to everyone except OnLive.

"Unless I receive a lawyer's letter from Microsoft clarifying their position and threatening legal action, I will build a service to match OnLive's and compete directly with them in the form of DesktopsOnDemand," Bule told us. "Any other business that launches that platform will get sued by Microsoft, which is kind of what we're hoping because we want to have that conversation with them in court."

Origins of the desktop licensing controversy

Both Microsoft and OnLive have declined interview requests from Ars, and neither has explained publicly what licensing scheme OnLive is using to deliver the OnLive Desktop service, which gives users access to Windows 7 and Office 2010. We do know from Microsoft's blog post that vendors can only host Windows 7 desktops in a virtual desktop infrastructure setting if the customers buy their own licenses from Microsoft. Even if this requirement is met, the vendor must host the desktops on separate physical hardware for each customer, ruling out a multitenant arrangement.

Separately, Microsoft partners with a Service Provider License Agreement (SPLA) can offer desktop-like functionality using Windows Server and Remote Desktop Services. This does not allow delivery of a real Windows 7 desktop, but it does allow hosted instances of Microsoft Office.

OnLive has apparently followed none of the proper licensing rules. The IT analyst firm Gartner called out OnLive for not revealing its licensing situation, and said Microsoft "has not provided clear guidance" on how users of OnLive's service should go about complying with licensing requirements.

Brian Madden, a member of Microsoft's MVP (Most Valuable Professional) program, publicly quit MVP after Microsoft refused to answer his questions about OnLive. Madden wanted to know how it could be possible to offer such a service without flouting Windows licensing rules. "Based on everything we know about Microsoft licensing, this [the OnLive service] should be in clear violation of Microsoft's policies," Madden wrote.

How Bule plans to violate Microsoft's licensing rules

So, what are Bule's plans? They very much revolve around what he hasn't been able to do with tuCloud. The company provides virtual desktops with a design that bolsters personal and corporate security by dismantling the virtual desktop each time a user logs off and then rebuilding it—complete with user preferences and settings—the next time the user logs in. By offering a non-persistent desktop that looks like a persistent one, tuCloud says it can nearly eliminate proliferation of viruses without an outcry from end users.

But providing that service requires customers to purchase Virtual Desktop Access licenses from Microsoft, or the expensive Microsoft licensing program known as Software Assurance (which includes virtual desktop rights), effectively limiting it only to big customers, like the Lawrence Livermore National Laboratory, which has deployed it to 5,000 users.

Bule says he has to turn away two-thirds of his leads because the licensing model doesn't work for small customers that don't purchase Microsoft's Software Assurance. It's not economical to build separate physical infrastructure for each customer to provide Windows 7, and the "desktop-like functionality" that can be provided through Windows Server and Remote Desktop Services isn't compatible with tuCloud's non-persistent desktop model, according to Bule. He's been publicly criticizing Microsoft's licensing model for more than a year.

DesktopsOnDemand will use roughly the same technology as tuCloud, he said, but it will use a licensing scheme that violates Microsoft's rules. Although DesktopsOnDemand will provide each user a genuine retail copy of Windows 7, it will violate the prohibition on providing hosted Windows 7 desktops on multi-tenant infrastructure, as well as the requirement to have Software Assurance or Virtual Desktop Access licenses.

Each desktop will cost about $25 a month. Providing the same pricing as OnLive "should be impossible," Bule said. "They're breaking every rule in the book to do that." By contrast, a properly licensed Windows and Office service for the iPad being developed by the vendor Nivio will cost $5 for each ten-hour increment.

Press releases from tuCloud and its partner Desktone say DesktopsOnDemand will be a tuCloud service launching in the second quarter, as early as April, but Bule told us he will incorporate it as a separate company. "TuCloud has never and will never break Microsoft licensing regulations," he said. "My clients are too important to risk my business that way."

The new company will be formed in the next couple of weeks, he said. Bule is investing $100,000 into the new venture, and a couple other unnamed people from within the desktops-as-a-service business are funding it as well. The technology is almost ready, he said. It will consist of VMware server virtualization on the back end, Nexenta storage, Desktone's virtual desktop infrastructure, and Citrix's HDX protocol, and is likely to be hosted on Rackspace. Virtual desktops will be delivered either through a Web browser or the Citrix Receiver client, making it available on Windows PCs, Macs, Linux, Android, and iOS.

"It's the dream infrastructure that we should have, and Microsoft won't let us," Bule said. Bule argues that Windows licensing restrictions have prevented the virtual desktop industry from taking off in the way industry analysts have expected it to.

"I will scream 'antitrust'"

"If I had a billion dollars in the bank I'd take them to court tomorrow," Bule said. Instead, DesktopsOnDemand is how he will "provoke Microsoft by proxy."

"If they sue that business, I'll appear in court and shout and scream 'antitrust, anticompetitive behavior,'" Bule said. "I don't think they want that because they can't justify their licensing."

Bule says tuCloud and other companies like it get calls from Microsoft two or three times a year to audit compliance with licensing rules. While no one seems to know for sure how OnLive's licensing arrangement with Microsoft works, Bule says he is suspicious of the connection between the companies because its CEO and founder is Steve Perlman, a former Microsoft division president. Perlman sold a previous company, WebTV Networks, to Microsoft, and founded a company, Moxi, that later merged with Digeo, a company founded by Microsoft co-founder Paul Allen.

DesktopsOnDemand will be able to serve up to 1,000 desktops. However, Bule said the company will have a limited amount of money, and once it runs out he will let it go bankrupt.

In other words, buyer beware.

"We can't build a serious business because it's illegal," Bule said. "This is not a serious business by any means."

69 Reader Comments

OnLive's CEO, while a former Microsoft employee, is probably going to sell OnLive off to MS. He has a habit of selling things off once the road is paved for them. I would almost bet this OnLive technology gets implemented into the next MS console in some fashion. If not the next, then the one after. Sheer speculation with no evidence, mind you.

The technology is almost ready, he said. It will consist of VMware server virtualization on the back end, Nexenta storage, Desktone's virtual desktop infrastructure, and Citrix's HDX protocol, and is likely to be hosted on Rackspace. Virtual desktops will be delivered either through a Web browser or the Citrix Receiver client, making it available on Windows PCs, Macs, Linux, Android, and iOS.

It is amazing how commoditized every part of this system has become...except the OS, of course. Specifically, Windows. I think these three sentences alone show how much Microsoft is stifling innovation in the virtualization department.

He isn't doing this to spite Microsoft, and he isn't angry. He either wants to settle and sell this to MS, or his lawyers have advised him that he's got a good chance of winning a lawsuit against MS. If this were a simple matter of licensing he'd obviously lose in court. So in that scenario he may have a card up his sleeve.

High level business is pretty similar to high level politics. There's always more to it than meets the eye.

It may not be the best way to go about it, but I think it's time for the validity of Microsoft's licences to be tested in court (and many other big software providers). Some of the restrictions they put in them are incredible, but when a company 'violates' them, the cases rarely make it to the courtroom.

Awesome. Now someone just needs to start a $1 billion class-action suit against M$ started for its asserting bogus patents against Android smartphone makers and coughing up those fake patent royalty payments that are passed on to end users ... and *then* justice will be complete.

This seems silly, there is no requirement for Microsoft to offer uniform licensing terms to everyone, they certainly don't offer a uniform price.. Ultimately the terms are arbitrary and capricious, a simple stroke of a pen would make OnLive legal, and who knows, maybe they already have such an agreement?

The thing that gets me about VDA is similar to my beef with Apple suing Psystar a few years back. It should be illegal to tell someone how they use the software they buy from you, full stop. And yes, I know that technically you are "licensing" it. It's still buying as far as anyone except lawyers and greedy execs are concerned, and it should be illegal to stipulate what you can and can't do with it. I should be able to run Win7 on a physical machine, a VM, a computer made entirely in Minecraft, whatever I can make it run on. All that Microsoft should be allowed to do, by law, is prevent people from buying one copy and using it for a few thousand machines.

Maybe you should re-read the whole article. His motive IS to make money, tuCloud (his company) is being cheated by a chummy deal between Microsoft and OnLive. If he can get the competition to all compete on a level playing field, he feels he WILL make money.

Nice idea, but if Bule's not organizing DesktopsOnDemand as a sustainable company, and is funneling only a fixed amount of money into it, there's nothing to prevent Microsoft from just letting bankruptcy take care of things without any need for some sort of legal hassle.

The thing that gets me about VDA is similar to my beef with Apple suing Psystar a few years back. It should be illegal to tell someone how they use the software they buy from you, full stop. And yes, I know that technically you are "licensing" it. It's still buying as far as anyone except lawyers and greedy execs are concerned, and it should be illegal to stipulate what you can and can't do with it. I should be able to run Win7 on a physical machine, a VM, a computer made entirely in Minecraft, whatever I can make it run on. All that Microsoft should be allowed to do, by law, is prevent people from buying one copy and using it for a few thousand machines.

Psystar's problem was that they were reselling it, not that they were users using the software on their own machines.

Yes, everyone who stands up for themselves are absolutely scumbags. Maybe you should assess your own behavior when you are being betrayed and pissed on by a business partner.

So he is breaking the licensing agreements in place, he is taunting Microsoft simply so he can make a buck?

Thats not standing up for yourself, its being a troll.

Wrong. He is breaking the licensing agreements in place because Microsoft is allowing at least one other competitor to ignore compliance which is creating unfair playing field for his company. It's already known that the company Microsoft is selectively ignoring is run by an ex-high-level Microsoft employee. He absolutely has a case for his outrage and retaliation.

Listen, if someone fucks with another's ability to provide for themself and their family, if all that happens is that the obstacle is taken to court, said obstacle should count theirself lucky. He's taking the high road as far as I'm concerned.

The thing that gets me about VDA is similar to my beef with Apple suing Psystar a few years back. It should be illegal to tell someone how they use the software they buy from you, full stop. And yes, I know that technically you are "licensing" it. It's still buying as far as anyone except lawyers and greedy execs are concerned, and it should be illegal to stipulate what you can and can't do with it. I should be able to run Win7 on a physical machine, a VM, a computer made entirely in Minecraft, whatever I can make it run on. All that Microsoft should be allowed to do, by law, is prevent people from buying one copy and using it for a few thousand machines.

Psystar's problem was that they were reselling it, not that they were users using the software on their own machines.

I understand that the two are not the same legally, but they are ethically (in my opinion). Psystar had every right to do what they did... the fact that the law disagreed merely means that the law is fucked up (which was my point).

This can be win-win for Blule, accepting his assumption* that MS is actually in a position to get smacked with an antitrust ruling.

If MS challenges DesktopOnDemand (and assuming they lose the case, as stated above), then they have to offer similar licensing to DOD as they do to OnLive.If MS doesn't challenge DOD, then he can roll out a comparable service and--if challenged--say "OK, then why did _two_ different companies get to do this?" The fact that one was built as a shell specifically to try and trigger a lawsuit is irrelevant, so long as it lasts a year or so (long enough that an audit would normally be launched).

* I make no pretense that he is correct. I am not a lawyer, and have no idea.

The thing that gets me about VDA is similar to my beef with Apple suing Psystar a few years back. It should be illegal to tell someone how they use the software they buy from you, full stop. And yes, I know that technically you are "licensing" it. It's still buying as far as anyone except lawyers and greedy execs are concerned, and it should be illegal to stipulate what you can and can't do with it. I should be able to run Win7 on a physical machine, a VM, a computer made entirely in Minecraft, whatever I can make it run on. All that Microsoft should be allowed to do, by law, is prevent people from buying one copy and using it for a few thousand machines.

Psystar's problem was that they were reselling it, not that they were users using the software on their own machines.

I understand that the two are not the same legally, but they are ethically (in my opinion). Psystar had every right to do what they did... the fact that the law disagreed merely means that the law is fucked up (which was my point).

How do you figure? Apple has never licensed or sold OSX licenses to other computer manufacturers to sell or pre-install for users. They had no history of doing so with OSX and had/have no plans to ever do it. It would be different if Apple let one company deploy and sell OSX and then told Psystar no. That wasn't the case. Apple's whole business relies on them designing and selling the whole widget. Psystar was fucking with the widget. I suppose you want to run Sony's latest PS3 firmware on your xbox 360. I would certainly love to play Mass Effect 1 on my PS3, but I fucking can't. I certainly don't hold it against Microsoft or Bioware, its their choice what they want to do with their software, though I'm sure Bioware would love to release MS1 on all platforms if they could.

Yes, everyone who stands up for themselves are absolutely scumbags. Maybe you should assess your own behavior when you are being betrayed and pissed on by a business partner.

So he is breaking the licensing agreements in place, he is taunting Microsoft simply so he can make a buck?

Thats not standing up for yourself, its being a troll.

Wrong. He is breaking the licensing agreements in place because Microsoft is allowing at least one other competitor to ignore compliance which is creating unfair playing field for his company. It's already known that the company Microsoft is selectively ignoring is run by an ex-high-level Microsoft employee. He absolutely has a case for his outrage and retaliation.

Listen, if someone fucks with another's ability to provide for themself and their family, if all that happens is that the obstacle is taken to court, said obstacle should count theirself lucky. He's taking the high road as far as I'm concerned.

Yes, everyone who stands up for themselves are absolutely scumbags. Maybe you should assess your own behavior when you are being betrayed and pissed on by a business partner.

So he is breaking the licensing agreements in place, he is taunting Microsoft simply so he can make a buck?

Thats not standing up for yourself, its being a troll.

Wrong. He is breaking the licensing agreements in place because Microsoft is allowing at least one other competitor to ignore compliance which is creating unfair playing field for his company. It's already known that the company Microsoft is selectively ignoring is run by an ex-high-level Microsoft employee. He absolutely has a case for his outrage and retaliation.

Listen, if someone fucks with another's ability to provide for themself and their family, if all that happens is that the obstacle is taken to court, said obstacle should count theirself lucky. He's taking the high road as far as I'm concerned.

Yes, everyone who stands up for themselves are absolutely scumbags. Maybe you should assess your own behavior when you are being betrayed and pissed on by a business partner.

So he is breaking the licensing agreements in place, he is taunting Microsoft simply so he can make a buck?

Thats not standing up for yourself, its being a troll.

Wrong. He is breaking the licensing agreements in place because Microsoft is allowing at least one other competitor to ignore compliance which is creating unfair playing field for his company. It's already known that the company Microsoft is selectively ignoring is run by an ex-high-level Microsoft employee. He absolutely has a case for his outrage and retaliation.

His reasoning defies logic - because that's not what Microsoft is doing. Essentially, he's complaining that Microsoft decided to talk to OnLive first, instead of, you know, suing them. He's complaining that Microsoft is being reasonable.

Boskone wrote:

If MS challenges DesktopOnDemand (and assuming they lose the case, as stated above), then they have to offer similar licensing to DOD as they do to OnLive.

Microsoft is. That what one of the linked articles is about - OnLive is offering a service which breaks the license that they are serving it under, and Microsoft found out about it and are talking to them about buying the proper license. That's why it's so insane.

[Edit:] It should be noted that Brian Madden asked the Remote Desktop team at Microsoft - and they told him "we can't answer licensing questions", because, you know, they're engineers, not the legal department.

Microsoft needs to reform their licensing structure. The fact that companies can not host their software economically or in a fully licensed way (hosted Windows 7) reflects very poorly on them as business partners.

"We recently told you about a virtual desktop service for iPads and other devices that seems to exist only because it breaks Microsoft's Windows licensing rules in order to provide an unbeatable price: free, with the option to upgrade to a more robust service for just $5 a month."

This is such a bunch of BS as Windows Server =/= Windows 7. Arstechnica staff writers really should hold themselves to a higher standard.

I hope his company gets seriously sued for this. I do think copyright law is way too broad, but this is someone making money off other people's work. Imagine if Netflix didn't pay royalties and streamed content to their heart's desire (while charging for it) because "they bought one legitimate copy".

Wrong. He is breaking the licensing agreements in place because Microsoft is allowing at least one other competitor to ignore compliance which is creating unfair playing field for his company. It's already known that the company Microsoft is selectively ignoring is run by an ex-high-level Microsoft employee. He absolutely has a case for his outrage and retaliation.

His reasoning defies logic - because that's not what Microsoft is doing. Essentially, he's complaining that Microsoft decided to talk to OnLive first, instead of, you know, suing them. He's complaining that Microsoft is being reasonable.

Your argument is based on the hypothesis of "Microsoft being reasonable"?

Flippancy aside, either you broke a licence agreement or you did not. You can't kinda sorta break a licence agreement. If MS allows OnLive to perform a service in violation of a licence agreement, that's anti-competitive behavior, even during negotiations. The licence is carved in stone.

You also can't give a special licence to company J to perform service A while NOT giving a special licence to company K to also perform service A. That's, again, blatant anti-competitive behavior.

As far as to the argument about this guy being a troll, so what? Some of the biggest SCOTUS rulings in this country were handed down because the plaintiff went "Come on, you punks, arrest me!" Griswold v. Connecticut comes to mind.

"We recently told you about a virtual desktop service for iPads and other devices that seems to exist only because it breaks Microsoft's Windows licensing rules in order to provide an unbeatable price: free, with the option to upgrade to a more robust service for just $5 a month."

This is such a bunch of BS as Windows Server =/= Windows 7. Arstechnica staff writers really should hold themselves to a higher standard.

I'm not exactly sure I understand the point you're trying to make, but OnLive's service is Windows 7, rather than an imitation desktop provided on Windows Server. This is all explained in the story and the previous one the paragraph you quote links to.

Awesome. Now someone just needs to start a $1 billion class-action suit against M$ started for its asserting bogus patents against Android smartphone makers and coughing up those fake patent royalty payments that are passed on to end users ... and *then* justice will be complete.

Hey, it's 2012. The M$ shit isn't funny or clever and hasn't been in a decade. It literally cancels out any point made in the surrounding paragraph

I hope his company gets seriously sued for this. I do think copyright law is way too broad, but this is someone making money off other people's work. Imagine if Netflix didn't pay royalties and streamed content to their heart's desire (while charging for it) because "they bought one legitimate copy".

Did you read the article at all? His company is doing everything right and has to turn down customers because of MS's onerous licensing terms. Then, OnLive releases a massively cheaper consumer product, ready to go on day one, that flouts those rules, and they happen to be owned by a former MS employee. Why didn't MS do their due diligence with the licensing audits for OnLive? That's the question, but to discover a private company's secrets (if you're not the Chinese gov't or anon) you need legal standing to subpoena their records. And to get a private company to treat you fairly, obviously, you need a lot more. In this case, a prior antitrust ruling and a known monopoly and also, the evidence he will be able to obtain as part of a court case if he isn't treated as well as OnLive is/was.

The thing that gets me about VDA is similar to my beef with Apple suing Psystar a few years back. It should be illegal to tell someone how they use the software they buy from you, full stop. And yes, I know that technically you are "licensing" it. It's still buying as far as anyone except lawyers and greedy execs are concerned, and it should be illegal to stipulate what you can and can't do with it. I should be able to run Win7 on a physical machine, a VM, a computer made entirely in Minecraft, whatever I can make it run on. All that Microsoft should be allowed to do, by law, is prevent people from buying one copy and using it for a few thousand machines.

Psystar's problem was that they were reselling it, not that they were users using the software on their own machines.

I understand that the two are not the same legally, but they are ethically (in my opinion). Psystar had every right to do what they did... the fact that the law disagreed merely means that the law is fucked up (which was my point).

How do you figure? Apple has never licensed or sold OSX licenses to other computer manufacturers to sell or pre-install for users. They had no history of doing so with OSX and had/have no plans to ever do it. It would be different if Apple let one company deploy and sell OSX and then told Psystar no. That wasn't the case. Apple's whole business relies on them designing and selling the whole widget. Psystar was fucking with the widget. I suppose you want to run Sony's latest PS3 firmware on your xbox 360. I would certainly love to play Mass Effect 1 on my PS3, but I fucking can't. I certainly don't hold it against Microsoft or Bioware, its their choice what they want to do with their software, though I'm sure Bioware would love to release MS1 on all platforms if they could.

Apple sells a boxed copy of OS X in stores (or at least, they used to, no idea if they do now). As far as I'm concerned, that means they have no rights to control what people do or do not do with that software.

I really think that OnLive, being owned by an ex-MS employee, has found some kind of loophole in MS's licensing requirements and is abusing it for all its worth. MS would obviously be loathe to explain what this loophole is to other parties, because then they'd lose a tonne of licensing revenue, so the end result is the one we have now: OnLive seems to be getting away with murder, while MS clams up and desperately tries to work out a way to close the loophole while keeping OnLive happy so that they won't spill the beans on the loophole to everyone else.

The only other alternative is that the ex-MS employee who owns OnLive has some kind of shady backroom agreement with MS, but the public challenge he just fired off makes this option less credible.

Flippancy aside, either you broke a licence agreement or you did not. You can't kinda sorta break a licence agreement. If MS allows OnLive to perform a service in violation of a licence agreement, that's anti-competitive behavior, even during negotiations. The licence is carved in stone.

You also can't give a special licence to company J to perform service A while NOT giving a special licence to company K to also perform service A. That's, again, blatant anti-competitive behavior.

As far as to the argument about this guy being a troll, so what? Some of the biggest SCOTUS rulings in this country were handed down because the plaintiff went "Come on, you punks, arrest me!" Griswold v. Connecticut comes to mind.

Barring public disclosure of talks between Microsoft and OnLive, everything is pure speculation. License agreements are different today thanks to companies talking it out in the past... and not always under the directive of a court ruling. For all intents and purposes, maybe OnLive accomplished an elegant technical feat at the behest of Microsoft, and now they're discussing how to craft an update to the licensing rules to allow broad adoption of a new virtualization license type. Hmm?

Two entities can get into ANY kind of agreement between them. It is not anti-competitive if they are actively working to resolve open issues; any third parties interfering with the discussions are putting themselves at a DISADVANTAGE by not playing by the rules. The concept of contract negotiations is not novel, so why Bule is acting the way he is demonstrates his impatience and inability to be civil with multinational corporations. Heck, even Oracle was able to do this... except when it comes to the US government (GSA).

Basically, neither Microsoft nor OnLive are doing anything illegal. They are two businesses in negotiations over matters. Period. DesktopsOnDemand can do whatever they please, but they would clearly be violating more rules and laws than merely a few Microsoft licenses; from what I can tell, all of those hardware, software, personnel, operational, and related costs would amount to much more than the $100k he has set aside. If a hosting company like Rackspace co-conspires with Bule on the new initiative, that would put the hosting company in a compromising position as they expose their knowledgeable encouragement of license violations and become co-defendants should anyone take them to court.

Microsoft's best bet is to sit back and watch... and allow the BSA group (not Microsoft) conduct its own software audits and pursue DesktopsOnDemand separately. Microsoft could then follow suit and use the BSA audit results as arsenal against DOD and Bule… potentially barring tuCloud from operating because of the public association and violation of license rules.